Technicians at a factory in China's Hebei province make the final preparations of solar cells. EU lawmakers are working on requirements for companies to map out sustainability and workers' rights issues in their import supply chains. Source: Kevin Frayer/Getty Images AsiaPac via Getty Images

EU lawmakers will this week lay out the first steps toward an import ban on products made globally using forced labor, after the United States issued a de facto ban on imports from the Chinese region of Xinjiang, a hub for global solar panel production, due to alleged human rights violations.

The imports plan will be brought in alongside new reporting requirements known as the Sustainable Corporate Governance directive, which will force companies to map out sustainability and workers' rights issues in their import supply chains, and engage with suppliers to improve practices.

The due diligence directive will require documentation on environmental impacts and human rights, including forced labor. In forced labor, persons are coerced to work through the use of violence or intimidation, or by more subtle means such as manipulated debt, retention of identity papers or threats of denunciation to immigration authorities.

"We need to address goods made by forced labor no matter where they are made, in the EU or elsewhere," a European Commission spokesperson said Feb. 18. "The commission is now working on the ways to introduce such a prohibition."

While the corporate governance directive will apply to all sectors and all countries, it will require companies in Europe's solar industry to ratchet up their attention on alleged forced labor in China. Much of the world's solar panel manufacturing capacity is based there and ties to the autonomous Xinjiang region are omnipresent in various nodes of the complex supply chain.

The U.S. government has said it found evidence of labor abuses in Xinjiang's solar industry, and in December 2021, President Joe Biden signed into law the Uyghur Forced Labor Prevention Act, which will ban goods from China's Xinjiang region unless importers can document that their products were not made with forced labor.

A spokesperson for the Chinese Mission to the EU said Feb. 21 that the accusation of forced labor in Xinjiang has "no factual basis and is a lie fabricated by anti-China forces."

"In proposing initiatives, [the EU] should adopt free, open and non-discriminatory market principles, provide a fair and just business environment for companies of all countries, and avoid unnecessary impacts on global industrial and supply chains," the spokesperson said.

Clarity on the EU's approach to restrictions is set to come Feb. 23 when the commission adopts its Communication on Decent Work Worldwide, together with the due diligence directive.

'Game changer' for human rights

In 2020, 75% of all imports of panels into the EU came from China, according to Eurostat, the EU's statistics agency.

"If you were to decide in February 2022 that you want to suddenly buy from crystalline solar companies that have nothing to do with Xinjiang you would have almost no choice," said Paul Wormser, vice president of technology at Clean Energy Associates, a global technical advisory focused on solar and storage. The trade restrictions in the U.S. are expected to push the American solar industry into disarray in 2022.

Instead, the EU's new reporting requirement will prompt buyers to ask more questions of their suppliers abroad, Wormser said in an interview. "It is more of a long-term approach toward the elimination of forced labor throughout the supply chain," Wormser said.

SolarPower Europe CEO Walburga Hemetsberger said the industry association welcomes the European Commission's efforts on value chain sustainability and transparency.

The notion of a decisive ban in Europe is not new, though it was long unclear whether and how the tool would be implemented. European Commission President Ursula Von der Leyen said in September 2021 that the bloc will propose a ban on products made using forced labor.

Since then, dozens of European Parliament members, primarily from the Social Democrat and Green Party blocs, have been urging the commission to turn those words into action. "The United States have done it and the European Union should do it," they said in a December 2021 statement.

The EU's Sustainable Corporate Governance directive will be a "true game changer" for human rights globally, Anna Cavazzini told S&P Global Market Intelligence. Cavazzini is a member of the European Parliament with the German Green Party who spearheads the effort on trade regulation in Brussels.

"Nevertheless, for severe violations like forced labor, we need stronger mechanisms to complement the due diligence legislation," Cavazzini said in an email.

'A big step up' in reporting

Sustainable corporate governance means developing long-term, viable and responsible business models, encompassing climate and environmental considerations and human rights, a spokesperson for the European Commission said in a Feb. 11 email. "This is for the benefit of both companies' performance and future generations," they added.

The aim of this process is a targeted EU-wide harmonized approach that "helps businesses on the path to sustainability by ensuring a level playing field and legal certainty," the spokesperson said.

"The fundamental task for this proposal is to transpose international standards from [United Nations] guiding principles into EU law," Julia Otten, policy officer at law firm Frank Bold, said in an interview. While numerous companies already have voluntary reporting mechanisms in place, "in many sectors this will require a big step up from what is currently being done," Otten said.

Because ethical risks are not concentrated in the same part of the supply chain in every industry, reporting requirements will cover the entire value chain. "But it will be general enough that concrete action is only required where there is a real risk for violations," Otten said.

Existing scrutiny in solar procurement

When it comes to human rights surveillance in solar panel procurement, some of Europe's biggest players say they are not starting from scratch.

Due diligence mechanisms will enhance transparency about human rights in procurement processes, according to a spokesperson for Italian utility Enel SpA, who added that the company has already made commitments against forced labor and requires adherence to International Labour Organization standards on slavery and human trafficking. In addition, "suppliers are requested to adopt best practices in terms of human rights and working conditions," the spokesperson said.

Enel's supplier qualification system ensures the careful selection of suppliers, assessing factors including human rights and ethical integrity requirements, the spokesperson said. It also uses artificial intelligence tools that collect and analyze news and information pointing to potential human rights violations and trigger ensuing action.

Swedish utility Vattenfall AB similarly has a supplier tracing system in place, according to Chief Sustainability Officer Annika Ramsköld. "Today, there is no full traceability," Ramsköld said about solar supply chains. Vattenfall has done on-site audits for all its suppliers, but the complex solar supply chain requires more thorough mapping beyond the final panel supplier, Ramsköld added.

However, the company has noted a positive shift in many suppliers' approach to working standards in recent years, and requests for transparency are no longer a surprise for China-based producers, Ramsköld said in an interview.

A spokesperson for Spanish utility Iberdrola SA said the company's suppliers must demonstrate to external auditors that all components are free of forced labor. "We refuse to work with suppliers who are unable to provide the necessary guarantees," they said.

No full traceability

It is not easy to ensure that imported solar panels are completely free of forced labor, however. "If someone says that they can guarantee this, I would say that is not possible," Ramsköld said. "The best thing we can do is continue to engage, train, ask questions."

Supply-chain audits seek to understand each stage of the complex manufacturing process, and include factory visits and document reviews, according to Wormser. Establishing transparency is extraordinarily difficult and guaranteeing an absence of forced labor is virtually impossible, he said. "Some suppliers treat their supply chain as intellectual property and a secret," Wormser said.

Following the introduction of the de facto ban on products imported to the U.S. from Xinjiang in 2021, Chinese authorities introduced a law making it more difficult for local producers to comply with outside requests for transparency.

"It's a geopolitical game, in the sense that China counters proposals with measures such as the anti-foreign-sanctions law," said Paul van Brenkelen, director of environmental, social and governance and traceability at Clean Energy Associates, based in Shanghai. "That's having quite a big impact."

Pursuing perfection in the quest for sustainability in supply chains is not a useful endeavor, according to Otten, but both the U.S. import ban from 2021 and the upcoming EU initiative are sending clear messages.

"The U.S. and the EU have leverage that they should be using," Otten said. "In fact I see responsibility to act with the countries that have for so long benefited from violations."

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